KARL MOORE – This is Karl Moore of the Desautels Faculty of Management at McGill University, with Talking Management for The Globe and Mail. Today I am delighted to speak to Claude Mongeau who is the CEO of CN [Canadian National Railway].

Good afternoon, Claude.

CLAUDE MONGEAU – Good afternoon, Karl.

KARL MOORE – For a while CN focused, under one of the former chief executives, on efficiency being a really important thing. Was there a moment when you had to say, “Efficiency is great but there is something I have to add to the formula?”

CLAUDE MONGEAU – Absolutely, I think efficiency is essential and we are the most efficient railroad in North America. But efficiency and customer service, operational and service excellence, is what we need to do ultimately to get to our full potential. So now we juggle one more ball. We are just as focused on getting velocity, on making sure that we have the highest possible asset realization, but we also focus on order fulfillment, on car placement in a timely way so that at the end of the day we have a great level of efficiency and a solid service to be able to grow.

KARL MOORE – How do you see the business model has changed in the last five or 10 years at CN? What is your vision for the future?

CLAUDE MONGEAU – Well, CN has been in a remarkable business transformation really for the last 15 to 17 years so we have the first phase coming out of privatization where we set out our vision to become the most efficient North American railroad. We needed to become North American so we made acquisitions and we needed to get better so we did that through cost restructuring. The second phase was the fundamental revolution to our business model when we went to precision railroading with a focus on balance and asset utilization, which allowed us to become the leaders in efficiency. Now we want to become a true supply chain enabler – we want to continue that business transformation, we want to evolve from strong and operating excellence to strong and operation and service excellence to be a true supply chain enabler, to grow a little bit faster and to continue to deliver shareholder value despite the fact that we don’t have as much cost take-out opportunity as we used to 15 years ago.

KARL MOORE – Looking back we can see the three phases, and it makes a lot of sense, but as you were in the middle of it how did you begin to see it’s time to have a different strategic focus? How did that come to your mind or the mind of your CEOs?

CLAUDE MONGEAU – I would say that eventually you get the diminishing return. If you push hard on any measurement, eventually you get to a point where the trade off is something else that is suffering in terms of performance. We were, on some metrics, operational – car velocity for instance or locomotive utilization, we were pushing to the point of actually having a negative impact on customer service outcomes. So by redirecting our focus, by making sure we were focusing on the two balls, we started to be able to balance operation and service excellence better and that is key to effectively gain market share, grow a little bit faster, and accommodate that business at low incremental costs so that we can, from a position of leadership, open a new avenue for performance improvement and shareholder value creation. So it’s part and parcel of our agenda of growth and profit improvement over time.

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